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BBB advice on family budgets: getting your house in order
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If you are like many Americans, you may have resolved to get a handle on your finances during 2016. Take heart because there is plenty of reason for optimism: you do not have to reinvent the wheel. There are some tried-and-true methods that have worked for many and can for you as well. Your Better Business Bureau has the following advice for anyone attempting to reign in household budgets during the coming year.
Do this first
It’s vital that you get an accurate picture of your current situation. Many are in denial about their finances, waiting until a crisis arises to deal with it. By that point it can be much too late for effective action. Being proactive makes the most sense.
Because our perceptions regarding our spending habits can be off base, a key step in getting things under control is keeping an exact record of our spending. There are phone apps, computer software programs and even old-fashioned notebooks available to help you do this. Seeing where you are actually spending your money rather than relying on your memory of it, can be an eye opening and even a jolting experience.
Break down your spending into separate categories. The two common main divisions are “necessities” and “luxuries.” “Necessities” would include housing, utilities, food and transportation. Household furnishings, operations like lawn care and housekeeping supplies all fall within this category.
A subcategory of “necessities” would be “debt reduction.” This involves credit card balances, student loans, car payments and any other amounts owed to debtors.
“Luxuries” would include entertainment, dining out and travel expenses. As the name implies, this category is for anything that isn’t vital.
Set up a budget
Once you have all of the above information readily available, over a short course of time, you will begin to see your spending patterns. You can start identifying fluctuations that require your attention. Questions will arise about why some costs rise, others decrease and which remain stable. These numbers provide the vital information needed as you set up a budget and predict future spending. Free online tools are available to help you with this part of your process. Just be cautious about sharing personal information with anyone online that may not be trustworthy.
Paying down debt and saving for the future are common goals for those working on their budgets. There are two predominate methods for paying down debt. You may either decide to make your goal paying off the smallest balances first (giving you a quicker sense of accomplishment) or you may want to work methodically toward paying off the debt with the biggest interest rate. The latter may take longer but have greater financial advantages for you. What’s important is that you set the goal and stick to it.
Online bill pay is a great tool to help you. You don’t have to write checks, buy stamps and mail the payment. Scheduling automatic payments also helps you avoid late fees and penalties.
You can avoid devastating new debts by saving up for those things that most often cause them – holiday spending, vacation spending and emergencies like home repairs, large appliance breakdowns, getting the car fixed, medical expenses and job loss. Start small and gradually increase savings amounts. For success it is vital that you develop the savings habit and don’t veer from it.
With perseverance and planning, your household budget can be the best tool in your toolbox for remodeling your financial future. If you have questions about developing your family budget, contact your BBB by calling (800) 856-2417, or visit our website at